Time Warner Inc.
broke out financial results for HBO for the first time on Wednesday, showing that the premium cable channel is generating far bigger profits than emerging rival
Netflix Inc.
but HBO's revenue is growing at a much slower pace.

HBO generated $1.8 billion in operating profit in 2013, as revenue grew 4% to $4.9 billion, about 27% of Time Warner's total, the entertainment company disclosed as it announced fourth-quarter earnings results. HBO and sister channel Cinemax together added two million domestic subscribers in the year, ending with 43 million U.S. subscribers. Time Warner said HBO accounts for about two-thirds of that total.

Those results stand in contrast to streaming-video provider Netflix, which is positioning itself as a competitor to HBO, finishing 2013 with 31.7 million paid U.S. subscribers, a little ahead of HBO.

Netflix's revenue rose 21% in 2013 to $4.37 billion—not far behind HBO—but it generated only $228 million in operating income, as content expenses weighed down profit.

The two companies don't compete head-to-head—HBO is distributed as an add-on to cable TV packages, while Netflix is an online outlet that bills customers directly. But Netflix's rise as a subscription-TV service with edgy programming, including original shows, has drawn inevitable comparisons to HBO, and top executives from both Time Warner and Netflix have taken digs at each other in the past. TV industry watchers have been waiting to see if consumers will drop traditional pay-TV service, including premium cable channels, as they sign up for Netflix.

On an earnings call Wednesday, Time Warner Chief Executive
Jeff Bewkes
said the services are "complementary," saying that homes that subscribe to HBO have higher usage of Netflix than those that don't get HBO. He said the availability of Netflix and other online services isn't adversely affecting HBO's subscriptions and "we don't see any discernible effect on pricing."

HBO has larger profits than Netflix for several reasons. It is a mature business with operations around the world while Netflix is still in the early stages of a big and costly global expansion. HBO keeps about half the $16-per-month cable customers typically pay for the channel—giving it roughly the same revenue per user as Netflix. But pay TV operators handle billing, customer service and help market HBO—all functions that Netflix does on its own.

Time Warner's HBO disclosures, which the company said was prompted by its planned spinoff of its Time Inc. magazine unit that puts more focus on its entertainment businesses, highlight challenges facing HBO. Although its subscriber additions in the U.S. last year were the best in 17 years, the revenue from some of those consumers was lower than normal because of contracts that allow cable and satellite operators to cut payments once they've signed up a certain number of subscribers for HBO in a year.

Meanwhile, HBO's operating profit fell in the fourth quarter about 4% to $413 million as it ramped up investments in original shows, leading to a 12% year-over-year rise in programming expenses. "We're investing aggressively in the best content," Mr. Bewkes said.

HBO is growing at a brisk pace overseas—where it has 84 million subscribers to Netflix's 9.7 million, Mr. Bewkes said. The HBO Go mobile app, which is available to the premium channel's subscribers, saw 30% growth in active users last year and is available in 23 countries outside the U.S., he said.

Overall, Time Warner reported a fourth-quarter profit of $983 million, or $1.06 a share, down 12% from $1.11 billion, or $1.15 a share, a year earlier. Revenue rose 4.9% to $8.57 billion. For the year, Time Warner grew revenue about 4% and profit 26%.

The company said Wednesday it has authorized $5 billion of share repurchases and raised its dividend by 10%

Higher programming expenses were also a factor at Time Warner's Turner division—which includes networks such as CNN, TNT and TBS. Turner's operating income fell 10% in the fourth quarter, partly because of those costs.

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Turner's advertising revenue grew 1% in the fourth quarter amid what Chief Financial Officer
Howard Averill
called "softer than expected ratings" at some channels. CNN's ratings are down from the previous year, when audiences were boosted by the 2012 presidential election.

Revenue growth at Turner was powered mainly by fees from pay-TV providers, which grew 6%. Time Warner expects to average double-digit growth in U.S. subscription revenue in the next three years. The company said it has signed long-term agreements with seven of the top 10 pay TV distributors.

Time Warner also disclosed that its Time Inc. publishing unit—which includes titles such as Time, People, and Sports Illustrated—will take on $1.3 billion in net debt when it is spun out as a separate publicly traded company in the second quarter.

In the latest quarter, revenue at Time Inc. was essentially flat at $966 million, on 6% lower subscription revenue although an acquisition boosted ad revenue 2%. The publisher has been laying off staff and cutting costs as part of a broader effort to simplify operations at its magazines and respond to shrinking print ad revenue. Time Inc. had operating income of $337 million for the year.

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